There have been so many changes to the personal tax rules that HMRC software has struggled to cope. As a result, HMRC have had major issues processing some 2016/17 self assessment tax returns correctly.
The introduction of both the Savings Allowance and the Dividend Allowance for the 2016/17 tax year have proved particularly disruptive. The main complication for HMRC has been to identify and rectify cases where it is not beneficial for a taxpayer to allocate personal allowances in the default order: non-savings income, then savings income, then dividend income.
In the new dividend tax regime there are a number of scenarios where it may be better for a taxpayer to reallocate part of the personal allowance to dividends. HMRC systems did not pick this up in every case. As tax agents, we must use commercially provided software that meets HMRC specifications – even if some of those specifications may be incorrect – otherwise the returns we file online would be rejected.
Many happy tax returns
There is some good news on the matter. HMRC have taken action to fix many of the problems, and updated the specifications for their 2016/17 tax calculator software. An adjustment so late in the tax year is unprecedented for HMRC, but the fix should be in place by the time you read this article. It should also then be possible for returns affected by these anomalies to be successfully filed on time.
There will be some instances where the problems will still not be resolved for the 2016/17 tax year. In the event that you are affected, there is an option to file on paper even though the 31 October deadline for paper returns has passed. If necessary, we can do this for you and provide a covering letter outlining technical details of what HMRC call the relevant ‘exclusion’ category. The extended deadline for paper returns affected by the IT problems will be 31 January 2018. In the event HMRC systems automatically generate a penalty for late filing, this will also be cancelled.
Please be assured that we are monitoring the situation closely and if your tax returns are affected, we will act to minimise your tax liabilities.